The Monetary Economy and the Economic Crisis
AbstractThe monetary economy has properties that cannot be analyzed using the tools of today's dynamic general equilibrium analysis. Keynes's economics, far from being an aberration in the otherwise orderly evolution of modern macroeconomics from Adam Smith's ideas about the "invisible hand", was a major contribution to an ongoing tradition in monetary theory in whose creation Smith himself had played a part. Retrospective consideration of this tradition suggests that the property of the monetary economy critical to the generation of economic crises and the stagnation that follows them is its capacity to permit trading at "false" prices, a phenomenon ruled out by assumption in dynamic general equilibrium models. Not only Keynes's explanation of depression but also Hayek and Robertson's analysis of the role of unsustainable forced saving in the boom can be thought of as relying on this factor.
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Bibliographic InfoPaper provided by Center for the History of Political Economy in its series Center for the History of Political Economy Working Paper Series with number 2011-04.
Date of creation: 2011
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crises; money; monetary economy; general equilibrium; cycles; sticky prices; flexible prices; false prices; rate of interest; forced saving; Keynesian economics; Monetarism; New Keynesian economics;
Other versions of this item:
- David Laidler, 2010. "The Monetary Economy and the Economic Crisis," University of Western Ontario, Economic Policy Research Institute Working Papers 20101, University of Western Ontario, Economic Policy Research Institute.
- B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
- B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
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- Howitt, Peter, 2012. "What have central bankers learned from modern macroeconomic theory?," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 11-22.
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